Page 14 - Bisiness Studies_Form_3

Business Studies for Secondary Schools

Product methods of setting product prices.
Product is defined as a set of tangible These are cost-based, customer-based,
and intangible attributes that lead to and competition-based pricing. These
customer satisfaction. It includes goods methods are described as follows:
and services. Marketing starts with the Cost-based pricing method: This is a
product since it is what a business has to method in which a business sets a price
FOR ONLINE READING ONLY
offer to its target market. The product is by adding all the costs related to the
important because it satisfies the target product and adding a certain percentage
market’s needs and wants, and it is the of profit to the product cost. The added
primary source of the business’s revenue. amount of profit or percentage to the
Product is what businesses sell or offer to product cost is called mark-up. Therefore,
realise their objectives. A well-developed pricing methods may differ if the business
product strategy that includes input from sets the price by adding a mark-up to the
the target market leads to the long-term total cost. Similarly, a business owner
success of businesses. may use variable-cost pricing methods by

Price setting a product’s price based on variable
Price is a component of an exchange production costs.
or transaction that takes place between
two parties. It refers to what must be Example 1: Justine owns a small
given up by one party (that is, a buyer) business that makes and sells T-shirts.
to obtain something offered by another He wants to use cost-based pricing to
party (that is, a seller). In general, price set a price for each t-shirt.
is the exchange value of a product as it Step 1: Calculate the total cost per
reflects the amount a buyer is willing to t-shirt
pay for goods or services. However, in Justine adds up all the costs involved
marketing terms, price is a sacrifice that in making one t-shirt:
the customer is willing to make to get (a) Fabric and materials = TShs
something in return. It may be money, 5,000
time, physical effort, or cognitive effort.
(b) Labour cost per t-shirt = TShs
Methods of setting product prices 2,000
Setting the right price for products (c) Overhead costs per unit (rent,
is an important and challenging task electricity, and packaging) = tShs
for businesses. The price to be set for 1,500
a certain product may be affected by
several factors, such as the availability Total cost per t-shirt = 5,000 +
of resources, politics, regulations, and 2,000 + 1,500 = TShs 8,500
market conditions. There are different

Student’s Book Form Three 6